Internet boosts Eesti Telekom's local call revenues

Jun 15, 2000
By Kairi Kurm

On May 29 Telekom announced its results for the three months ended
March 31 to the Tallinn Stock Exchange.

"Year 2000 started with strong results following our focus on
innovation and efficiency," said Toomas Somera, chairman of the
board of Eesti Telekom, who quit a few days later.

Eesti Telekom's revenue increased by 15 percent compared to the same
period in 1999 to 939 million kroons ($57 million), and profit before
taxes increased by 40 percent to 247 million kroons.

"An essential part of the growth resulted from the success of the
group keeping up with recent developments of the world
telecommunications industry," said Somera. Another factor of equal
importance to the development of the group was the expected changes
of the Estonian market with the opening of the fixed communications
area for new companies and competition on the market in 2001, Somera
reported.

Company is working profitably

Net profit of Eesti Telekom Grupp in the first quarter of 2000
amounted to 246 million kroons, but this is not comparable to the
corresponding results of the previous year because of restructuring
that took place in the group.

By the end of the year, Krister Bjorkqvist, finance manager, predicts
a much higher profit compared to last year, because the company does
not have to pay taxes on income, and there are no extraordinary
expenses. Veikko Maripuu, head of the sales and research department
in Suprema, predicted the net profit to reach 1.1 billion kroons by
the end of the year.

Bjorkqvist said that the first quarter results of Eesti Telekom were
better than he expected.

"If we compare the earnings before income tax, depreciation and
amortization to the same indicator of other telecommunication
companies in Eastern and Western Europe, then we should admit that
Eesti Telekom's results are very good. In Eastern Europe the average
EBITDA is about 47, in Western Europe ,40, or even below. In Sonera
it was 32 percent," said Bjorkqvist. Maripuu predicted EBITDA to be
around 52.2 percent by the end of the year.

Bjorkqvist said that Telekom's success was resulted by its ability to
cut costs. He said that Eesti Telekom's operating expenses were much
higher last year due to the costs related to the IPO, listing of the
shares of the company on Tallinn and London Stock Exchanges and
restructuring.

Local call revenue, which exceeded last year's results by 34 percent,
was the fastest growing part of the revenue in the first quarter. The
main factor behind the growth was Internet.

"We expect very much from Internet. That is why we make big
investments in this field," said Bjorkqvist. Bjorkqvist said Eesti
Telekom is planning to start its own portal soon. Currently, dial-up
minutes are over 31 percent of the total minute volumes, including
local, domestic, international and mobile calls.

The management of Eesti Telekom also said that the prices of local
calls for private clients, which at present are subsidized by
international and local business clients, would increase to their
actual level and the prices of mobile phone calls will decrease.

Big resources mean huge plans

Eesti Telekom Grupp invested 244 million kroons in three months of
2000. Maripuu said the company intends to become stronger and make
further investments before the special rights of Eesti Telefon to
provide fixed communication services expire on January 1.

"The company has a lot of money," said Maripuu. "It has more cash
than loans. For an investor, it means a company is working
inefficiently, but it may also mean that they have some acquisition
plans." Maripuu added that Telekom paid out a very small amount of
dividends, which may also indicate a need of money for investments.
He said it is very difficult to analyze the company now that Eesti
Telekom gives consolidated results and does not give information on
its subsidiaries.

Both Bjorkqvist and Maripuu agreed if the state would sell its 27
percent stake in the company as promised in an IMF memorandum,
Telekom's share would become more attractive for foreign investors
and its liquidity would rise.

"If the state sells its shares in Telekom, the free float would
increase from $300 million to $600 million-$700 million . Most
foreign investors are not interested in companies with a float
smaller than $500 million. They want to be sure they are able to sell
the share in two days if necessary," said Bjorkqvist.

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